Closing costs vary widely based on the property and how you are paying for the home. Typically, buyers will pay 2-5% of the purchase price in closing fees, assuming they are obtaining a mortgage. If you pay cash, your closing costs are significantly less and will mainly include just your attorney fees, recording fees, inspection fees and any title insurance.
If you are taking out a mortgage, here's how it works:
The Loan Estimate: Your lender will give you a Loan Estimate, which will include what the closing costs on your home will be. Then, at least three business days before your closing, the lender provides you a Closing Disclosure Statement, which outlines closing fees again. Compare this to your Loan Estimate. Specifically check the interest rate and total closing costs. If there are significant differences between the two documents, do not sign the documents and immediately contact your lender for an explanation. If you are not satisfied with the explanation, you can cancel the mortgage and start over with another lender. Although you may have to cover some non-refundable fees like the appraisal fee and certain lender fees, you may save a significant amount of money over the life of the mortgage.
You may avoid upfront fees on a loan by getting a no-closing cost mortgage. However, a lender may charge a higher interest rate, or the lender may wrap the closing fees into the total mortgage owed, in which case you end up paying interest on the closing costs.
List of Fees: Here is an inclusive list, given aphabetically that may be included in a closing. Don't be too nervous about this all-inclusive list - some are nominal amounts and some may be negotiable.
Application Fee: This fee covers the cost for the lender to process your application. Before submitting an application, ask your lender what this fee covers. Not all lenders charge an application fee, and it can often be negotiated.
Appraisal: This is paid to the appraisal company to confirm the fair market value of the home (often included in the application fee)
Attorney Fee: This pays for an attorney to review the closing documents on behalf of the buyer or the lender.
Courier Fee: This covers the cost of transporting documents to complete the loan transaction as quickly as possible.
Credit Report: Typically, your FICO scores from the three bureaus (tri-merge report) are pulled to get your credit history and score (can be included in the application fee)
Escrow Deposit for Property Taxes & Mortgage Insurance: Often you are asked to put down two months of property tax and mortgage insurance payments at closing.
Home Inspection: You will likely get your home inspection to verify the condition of a property and check for home repairs needed before closing. You pay for this at the time of the inspection directly to the company handing the service.
Homeowners’ Insurance: Your first year’s insurance is often paid upfront at closing.
Lender’s Policy Title Insurance: This is insurance to assure the lender that you own the home and the lender’s mortgage is a valid lien, and it protects the lender if there is a problem with the title. Similar to the title search, but always a separate line item.
Loan Discount Points: “Points” are prepaid interest. One point is one percent of your loan amount.
Owner’s Policy Title Insurance: This is an insurance policy that protects you in the event someone challenges your ownership of the home. It is usually optional and is offered by your attorney.
Origination Fee: This covers the lender’s administrative costs. It’s usually about 1 percent of the total loan but you can sometimes find mortgages with no origination fee.
Prepaid Interest: Most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.
Private Mortgage Insurance (PMI): If you’re making a down payment that’s less than 20% of the home’s purchase price, chances are you’ll be required to pay PMI. If so, you may need to pay the first month’s PMI payment at closing.
Recording Fees: A fee charged by your local recording office, usually city or county, for the recording of public land records.
Title Search Fee: This fee is for doing a thorough search of the property’s records to ensure no one else has a claim to the property. (may be included in attorney fee)
Underwriting Fee: This also goes to your lender, covering the cost of researching whether or not to approve you for the loan.
Bottom line - Speak to your attorney and lender to get a clear understanding of your closing costs. A bit of good news...all the services from your real estate agent won't cost you a dime! His/her professional services are paid by the seller at closing.
For more Home Buying information, click BUY WITH CONFIDENCE.
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